UK: The Jackson Reforms – What Insurers Need To Know

1 April 2013 sees the implementation of many of Lord Jackson's costs reforms. The 'Jackson Reforms' introduce a number of changes to the English litigation costs regime which will affect the overall cost of cases, including for insurers. Amongst the key changes which will be relevant for insurers are:

1. Solicitors' success fees and after the event (ATE) insurance premiums will generally no longer be recoverable from the paying party.

2. Referral fees in personal injury cases will be banned.

3. General damages (for pain, suffering and loss of amenity) will be increased by 10%. The laudable intention is that the reforms will result in greater control over and better management of litigation costs for everybody.

One of the major changes to be implemented on 1 April 2013 is that solicitors' success fees when they act on conditional fee agreements (CFAs) will cease to be recoverable from the opponent as part of the costs of the action. Before the reform, a "success fee" could increase solicitors' costs by up to 100%. This reform should save insurer and other defendants money. Similarly, in another major change to the recoverability of claim costs, premiums for ATE insurance policies entered into after 1 April 2013 will no longer be recoverable from the losing party (there are some limited exceptions to this new rule). These changes are likely to have a significant effect not only on personal injury claims and the costs incurred by liability insurers but also on the ATE insurance market. There is likely to be a continuing demand for ATE and BTE (before the event) insurance, but the key factor is that the cost will now be incurred and borne by the party buying the insurance and it will not be possible to pass that cost on to a defendant.

These benefits for defendants are balanced by two other reforms, designed to facilitate potential claimants pursuing their remedies. The first of these balancing reforms introduces the concept of "qualified one-way costs shifting" (QOCS) in personal injury cases. QOCS displaces the established general costs rule that the 'winner' recovers its costs and provides that an unsuccessful personal injury claimant will not be liable to pay the defendant's costs, unless there has been exceptional behaviour on the part of the claimant, such as fraud. However, the defendant will still be required to pay the costs of a successful claimant. The second balancing reform is the introduction of an uplift for 'general' damages. Lord Jackson proposed an increase of 10% as it "would assist claimants who proceed on CFAs to meet the success fees" which they will now have to pay their solicitor out of their recoveries. The Court of Appeal in Simmons v Castle¹held that this increase will apply to cases commenced after 1 April 2013.

Most of the changes referred to above are specific to personal injury cases and to liability and ATE insurers. But the Jackson Reforms are much broader and introduce changes to litigation costs which will affect the conduct of all litigation (in the fullness of time) in two important respects:

1. Damages based agreements (DBAs), otherwise known as contingency fees, are now allowed. This simply means that the fee agreed between the claimant and its solicitor can be contingent upon the success of the case. DBAs are subject to a cap. In personal injury cases, the solicitor may only take 25% of the damages and in other civil litigation only 50%. Contingency fees will only be recoverable at the end of a case (as it is based on damages recovered).

2. Costs budgeting is going to be required. In multi-track cases issued from April 2013, lawyers will be required to provide their own costs budgets for the approval of the court at the Case Management Conference stage. The courts have exempted certain classes of claims from budgeting at present, and proceedings in the Commercial Court are also exempt, but the discipline will develop and should help all litigants, including insurers, have greater certainty about the costs of disputes in the future.

The Jackson reforms are aimed at the conduct of litigation and they will have a large impact on litigants, their insurers and, particularly, their solicitors.

Footnotes

1. [2012] EWCA Civ 1039

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